Small Firms Wary of Offering Retirement Plans

February 15, 2011 (PLANSPONSOR.com) - The economy and changes in retirement plan options have made it difficult for small businesses to offer employer-sponsored retirement plans for employees, according to a joint report from the National Center for Policy Analysis (NCPA) and PostPartisan Foundation for The Campaign for Economic Security.

The report — Small Business and Employee Retirement Savings Plans—indicates that surveys show small business owners are concerned about the administrative costs of providing a 401(k)-type retirement plan, not being able to afford a company match, or lack of interest from their employees. Only one-third of firms with fewer than 25 employees sponsor retirement plans, compared to about 80% of firms with 100 or more employees.

Report author and NCPA Senior Policy Analyst Pamela Villarreal contends specific public policy changes would make it easier for small businesses to offer retirement plans. One is to allow them to auto-enroll their workers into traditional IRA accounts, making it more likely that employees will stay enrolled in the system.

“An auto-enrollment option for IRA plans would be an enormous asset becauseemployers would have no fiduciary liability, and would not have to make matching contributions, making the plans simple and more cost-effective for small businesses,” said Villarreal, in a press release. “Businesses currently receive a tax credit for the first three years they provide a retirement plan. Lawmakers should consider making this tax credit permanent or allowing a choice between the current flat credit and a ‘per participant’ credit.”